The Effects of Oil Prices on Our Nation's Economy

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The Effects of Oil Prices on Our Nation's Economy


As one may have noticed in the past few years the price of oil has risen drastically. Either at the gas pump or at home in the winter with the heating bill the price of oil effects everyone.

The beginning of this paper discusses what OPEC is, what it does, and why it is good or bad. Also it will begin to discuss the price of oil in the global oil market but mostly in our nation's economy: who, what, when, where, why, how.

The purpose of this research paper is to educate the reader on the effects of oil prices and how another oil crisis can be prevented like the one in 1973. That oil crisis quadrupled the price of oil, eliminated economic growth, double inflation rates, and launched many nations into urgent pursuit energy self-sufficiency (Shojal 27).

What should the price be on a barrel of oil? This question is asked a lot and does not always have a easy answer. Oil is a strategic and valuable resource. The question of running out of oil is a major concern.

Another major concern is the rising price of a barrel of oil. Barrels of oil are currently approaching more than $70 dollars. Effects of these high prices are spreading throughout the world economy; increases in the cost of gas, travel, and home-heating oil are really starting to take a big bite into everyone's pockets.

Oil is found in large quantities below the surface of Earth and is used as a fuel and as a raw material in the chemical industry. Modern societies use it mainly to achieve a degree of mobility on land, at sea, and in the air. In addition, oil and its by-products are used in the manufacture of medicines and fertilizers, foodstuffs, plastics, building materials, paints, cloth, to generate electricity, and most importantly gasoline.



OPEC stands for the Organization of Petroleum Exporting Countries. OPEC was originally established in 1960 in response to a unilateral decision of oil companies to reduce prices of oil. The founding members of OPEC are: Iran, Iraq, Kuwait, Saudi Arabia, and Venezula. Today OPEC is made of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela (Organization of Petroleum 1).

OPEC was started on September 17, 1960 to protest pressure by major oil companies which were mostly owned by U.S., British, and Dutch companies to reduce oil prices and payments to producers (Organization of Petroleum 1). At first OPEC operated as a bargaining unit for the sale of oil. Later its activities were to gain a larger share of the oil revenues produced by western oil companies and expressed control over the levels of production. The main objectives of OPEC were to get a fair return on exporting oil, oil price stabilization, and regulation of oil output (Shojal 85).


Saudi Arabia is a leading member of OPEC. Saudi Arabia is a leading member of OPEC. (Al Faisal 1). When OPEC wants to raise the price of oil, all it has to do is just reduce its production. This causes oil prices to rise because of the short supply, but also because of the chance of future declines in production.

OPEC's part of world wide oil production has varied considerably between 1970 and the present. OPEC's world wide production of oil was the highest in 1973 at 53.9 percent and the lowest at 31.1 percent in 1985 (Shojal 19). In the 1990's OPEC's oil production increased by two times the world increase in production OPEC is often referred to as the swing producer, absorbing the greatest impact of changes in production (Shojal 19).



The world consumes 87 million barrels of oil every day, which totals to 30 billion barrels of oil every year (Bailey 2). This brings up the question. Will our oil supply run out? That is a tough question to answer. Proven oil reserves, oil that is recoverable under current economic and operating conditions, are estimated to be 1.1 trillion...
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